Competing Foreign Aid Regimes

One of the most significant changes in the international system over the last quarter-century has been the rise of China as a major supplier of development finance. China now rivals the United States and other OECD donors in terms of the amount of aid it gives to low-income countries. China, however, is not party to the Development Assistance Committee (DAC) established by members of the OECD in the early 1960s to coordinate on the principles, rules, and procedures for the effective provision of foreign aid. Instead, Beijing continues to be guided by its own rules first set out by Chinese Premier, Zhou Enlai, in his tour of Africa in 1964. In collaboration with Rob Blair at the Watson Institute for International and Public Affairs at Brown University, we have sought to bring rigorous evidence to bear to debates on the effects of these competing aid regimes. Our research has addressed three important questions to date.

  1. Does foreign aid diminish the legitimacy of recipient states? 
  2. What are the effects of foreign aid on a donor’s soft power and the transmission of its political values?
  3. China vs. DAC: Which foreign aid regime do policymakers around the world prefer?

1.) Does foreign aid diminish the legitimacy of recipient states? 

Supported by USAID’s Democracy Fellows and Grants (DFG) program, we first set out to account for the effects of foreign aid on the legitimacy of recipient governments in the eyes of citizens. Canonical accounts of legitimacy in the social sciences suggest that aid should diminish the legitimacy of recipient states. We test this idea by comparing the effects of US and Chinese aid to Africa. Using a multi-methods research design, we combine within-country analysis of original surveys, survey experiments, and behavioral games in Liberia with cross-country analysis of existing administrative and Afrobarometer data from six African countries. We find little evidence to suggest that exposure to aid diminishes the legitimacy of African states. If anything, the opposite appears to be true. Our results are consistent across multiple settings, multiple levels of analysis, and multiple research designs. This belies some of the most serious concerns that foreign aid—especially Chinese foreign aid—may eviscerate state legitimacy and break the fiscal contract. about the effects of foreign aid, especially from China. This article, “Foreign Aid and State Legitimacy: Evidence on Chinese and US Aid to Africa from Surveys, Survey Experiments, and Behavioral Games,” was published in World Politics in 2021.

2.) What are the effects of foreign aid on a donor’s soft power and the transmission of its political values?

Another important question regarding foreign aid is whether it is effective in boosting a donor’s soft power and transmitting its political values. Combining data on 38 African countries from Afrobarometer, AidData, and the Aid Information Management Systems of African finance and planning ministries, we use spatial difference-in-differences to isolate the causal effect of Chinese and US aid. We find that Chinese aid to Africa does not increase, and may in fact reduce, beneficiaries’ support for China. In contrast, US aid appears to increase support for the US and strengthen recipients’ commitment to liberal democratic values, such as a belief in the importance of elections. Chinese aid does not appear to weaken this commitment, and may strengthen it.  This article, also co-authored with Robert Marty of the World Bank , “Foreign Aid and Soft Power: Great Power Competition in Africa in the Early 21st Century,” is forthcoming in the British Journal of Political Science.

zhou enlai ghana
Chinese Premier, Zhou Enlai, with Ghana President Kwame Nkrumah in Accra, Ghana in 1964. Source: Wikipedia, public domain.

3.) China vs. DAC: Which foreign aid regime do policymakers around the world prefer?

Chinese and DAC donors have fundamentally different approaches to foreign aid, leading to the emergence of different aid regimes—that is, the formal and informal guidelines, practices and norms that shape the types of projects donors fund, the conditions (or lack thereof) attached to the money donors provide, and the modalities of implementation. Whereas China tends to offer large, infrastructural projects funded by concessional loans with no conditionalities nor public reporting and few regulatory requirements, albeit with procurement of services and inputs tied to Chinese firms, DAC donor projects are often the polar opposite. They tend to be smaller scale aid projects focused on capacity-building and civil society funded by grants with more transparent reporting systems but conditional on certain political and economic benchmarks and requiring adherence to human rights, environmental and labor provisions.

To estimate policymaker demand for the principal dimensions of these competing aid regimes, we fielded a conjoint experiment among 3,407 policymakers from 141 countries embedded in the 2020 wave of the Listening to Leaders Survey (LTL Survey) administered by AidData between June 25 and September 16, 2020. As part of the experiment, respondents were shown two profiles describing different types of aid that their governments might receive in which we randomized seven aid attribute levels across respondents and profile pairs but with no information on which donor country is sponsoring the project. Attributes included: (1) project size; (2) project type; (3) conditionalities; (4) procurement; (5) regulations during implementation; (6) terms of lending; and (7) reporting. Each attribute had between two and four possible levels, that enabled us to compare the following: between large and small aid projects; between infrastructure, civil society and state capacity projects; with and without conditionalities; between tied and untied aid; with and without regulations; between different types of lending; and with and without public disclosures. The conjoint thus lets us infer policymaker demand for core elements of the Chinese vs DAC aid regimes.

While respondents favored large infrastructure projects—more in line with the Chinese aid regime—on all other dimensions we see much stronger preference for aid policies core to the DAC aid regime. We see no aversion to political, economic and social conditionalities and if anything find slight support for them compared to no conditionalities. Recipients favor untied aid by 5 percentage points and strongly favor aid agreements with anti-corruption and environmental safeguards (by 13 and 10 percentage points, respectively, compared to no regulations). We also observe a strong preference for aid transparency—an increase of 10 percentage points compared to no transparency. Overall we find the probability of elites selecting an ideal-type DAC aid project is close to 70% but less than 50% for an ideal-type Chinese aid project.

Taken together, this suggests, despite countries turning to Beijing for economic assistance, aid recipients do not necessarily favor China’s approach. If anything, we find the opposite. Policymakers are loath to select aid projects that do not include reporting transparency and anti-corruption and environmental safeguards. Moreover, despite rulers anecdotal embrace of China’s “no strings attached” aid, we do not find strong preference for aid without conditionalities among the policymakers and bureaucrats at the forefront of negotiating and implementing aid agreements. One interpretation of these policy preferences is parliamentarians, bureaucrats and civil society seek to leverage aid agreements as an opportunity to tie the hands of their own governments, but especially donors—by not only incorporating stronger regulations in contracts but making them public as levers of accountability.